Financial Regulation and Compliance: How to Manage Competing and Overlapping Regulatory Oversight, + Website

CHAPTER 4 How to Defend SEC Examinations

The regulatory Agencies and SROs conduct periodic and cause examinations of firms under their jurisdiction to inspect their records and ensure that the firms are complying with all applicable rules and regulations. The examination process can last for several weeks or even longer both on and off-site and can be extremely stressful for firms that are also attempting to continue to operate their substantive businesses while the examinations are ongoing. The next three chapters provide firms with practical, hands-on advice for defending the different types of examinations commenced by the SEC, FINRA, and NFA.

4.1 SEC AUTHORITY TO CONDUCT EXAMINATIONS

Under section 17 of the Securities Exchange Act of 1934, the SEC has authority to conduct inspections over registered broker-dealers. Section 17(b) of the Exchange Act states that “[a]ll records of [defined to include broker-dealers] … are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the [SEC] and the appropriate regulatory agency for such persons as the [SEC] or the appropriate regulatory agency for such persons deems necessary or appropriate in the public interest, for the protection of investors …”¹ Section 17(a) of the Exchange Act states that registered broker-dealers “shall make and keep for prescribed periods such records, furnish such copies thereof, and make and disseminate such reports as the [SEC], ...